126 Neb. 856 | Neb. | 1934
Frank A. Hershey died leaving a will which was admitted to probate; and on June 14, 1918, Ira A. Kirk was appointed trustee of certain assets of said estate, accepted such trust, and acted as such trustee from the date of his appointment to May 3, 1930, on which date he was removed from such position, and the plaintiff (appellant), First Trust Company of Lincoln, Nebraska, was appointed trustee by the district court for Buffalo county.
On and prior to the date of his appointment as such trustee, and continuously thereafter, up to December 29, 1929, Ira A. Kirk was president, a principal stockholder, and active managing officer of the appellee Exchange Bank, Gibbon, Nebraska. December 29, 1929, said bank was closed by the department of trade and commerce, after which time Kirk was no longer connected with the management thereof. Appellee S. L. Leas is trustee and has in his possession or control assets of the Exchange Bank, which he holds in trust for the benefit of depositors and creditors.
This suit was instituted by the First Trust Company of Lincoln, trustee of the Hershey trust estate, as an action in equity, against the Exchange Bank, Gibbon, Nebraska, Ira A. Kirk, and S. L. Leas, trustee, for an accounting and the recovery of the sum of $2,900, with interest from October 18, 1923, claimed to have been wrongfully invested in the notes of Clarence K. Geyer. Plaintiff fur
Among the assets delivered to the plaintiff, as the new trustee of the Frank, A.. Hershey trust estate, were four promissory notes signed by one Clarence K. Geyer, all dated July 11, 1923, two notes being for $500 each, due one year after date, and one for $1,000 due nine months after date. These three notes were payable to the Exchange Bank, Gibbon, Nebraska. The fourth note has no payee nor date of maturity designated. All four notes were indorsed, “Exchange Bank, without recourse, I. A. Kirk, Pt.”
The plaintiff contends: (a) That the Geyer notes were worthless, and known by Kirk to be worthless at the time they were sold to the trust estate; that the investment was an improper one, made without approval by any constituted authority, and was a breach of trust imposing an obligation on Ira A. Kirk, the trustee making such investment, to restore the funds thus wrongfully diverted; (b) that the Exchange Bank, through its president and active managing officer, had knowledge that the funds of the trust estate were being wrongfully diverted, knowingly participated in such wrongful diversion and profited thereby; and the assets of the bank being augmented by the breach of trust, it is chargeable as a constructive trustee with the duty of accounting to such trust estate therefor; (c) that, since the trust fund has been traced into the bank and its assets augmented thereby, the plaintiff is entitled to have the assets of the bank, in its direct control, and also the assets of the bank deposited with S. L. Leas, trustee, impressed with the trust for the amount wrongfully diverted, with interest, prior and superior to any claim or lien of depositors and creditors in the bank.
The defendants, answering, admit certain formal allega
During the time of the transactions involved herein, Ira A. Kirk, as trustee of the trust estate of Frank A. Hershey, kept funds of said trust on deposit in the Exchange Bank. At the same time he was president, a principal stockholder and active managing officer of said bank. On the 18th day of October, 1923, said bank was the owner and holder of the notes of Clarence K. Geyer, previously described, and also one other note for $900, the same being a part of the assets of the bank. On said date the appellee Kirk, as trustee of the Frank A. Hershey estate, purchased of the appellee Exchange Bank, through himself as its president and active managing officer, four notes totaling $2,900, the purchase price of $2,900 being paid out of the cash of the trust estate on deposit in the Exchange Bank, and said money was paid to the bank and mingled with its general mass of assets.
The briefs of appellees are devoted almost entirely to the discussion of the contention that the amended petition of appellant does not state facts sufficient to constitute a cause of action. No demurrer was filed to the amended petition. The sufficiency of the amended petition was first raised after issues of fact were joined, by demurrer ore tenus; that is, by objection to the introduction of evidence. “The rule is that, after issues are joined, the pleadings will be liberally construed. But when a pleading is tested by demurrer, before issue joined,, it is construed most strongly against the pleader.” Frye v. Omaha & C. B. Street R. Co., 106 Neb. 333. See Johnston v. Spencer, 51 Neb. 198.
The amended petition alleges that neither the plaintiff nor the beneficiaries of said trust had any knowledge of said wrongful and fraudulent acts until the appointment of plaintiff as trustee of said trust estate about the 3d day of May, 1930. The want of knowledge of the alleged wrongful and fraudulent acts is set out as specifically, if not more so, than it was in the petition in the case of Abbott
As to the evidence bearing upon the statute of limitations and laches: The transaction involved was solely between Ira A. Kirk, as president and active managing officer of the Exchange Bank, and the same Ira A. Kirk, as trustee of the Hershey trust estate. After the date of that transaction, October 18, 1923, and prior to the 5th day of February, 1930, Kirk filed reports as trustee for each year with the county judge. The reports for 1926 and 1927 did not attempt to itemize investments; but for the other years, beginning with 1923, investments were itemized. In none of the reports was any mention made of having any Geyer notes; but Kirk states, in his testimony on the trial, that he included the amount invested in the Geyer notes with the amount charged against himself personally; and it was not until the report was filed for the year 1929, under date of February 5, 1930, that investment in the Geyer notes was disclosed. Until that time Ira A. Kirk appears to have been the only person who was possessed of any knowledge of the transaction. When effort was made to ascertain from Kirk, while a witness, why he listed the Geyer notes as “I. A. Kirk” on his report for 1923, he stated, “maybe looked better;” and when pressed further as to that and other reports, his replies were evasive and unsatisfactory. By his- acts Kirk concealed the investment in the Geyer notes from the county court and all others who might ■have examined the records. He testified that he never advised the beneficiaries, either by correspondence or orally, of the investment. The facts disclosed by the
Prior to the 3d day of May, 1930, Ira A. Kirk was the trustee of the Hershey trust estate, by whom an action for the recovery of the trust fund should have been instituted. He was himself one of the alleged wrong-doers whose acts constituted the basis of this action. The Exchange Bank, through the acts of said Kirk, its president and active managing officer,. participated in and its funds were augmented by the wrongful acts of said Kirk, as its president and active managing officer, at the expense of said trust; hence, said bank was a joint wrong-doer. Under such circumstances the doctrine of laches has no application. 21 C. J. 238; Williard v. Campbell Oil Co., 77 Mont. 30.
Prior to the fall of 1917, Clarence K. Geyer had been employed as a farm hand; he was then about 28 years of age and unmarried. That fall he borrowed of Roscoe Lunger, an officer of the Commercial Bank, Gibbon, Nebraska, $70 to buy a cow; Geyer then had no money to put into the deal; the returns on the sale of the cow came back to the bank, and the profits were divided. He had a series of transactions of a similar nature covering a period of some two months, during which time he made a profit of about $2,400. He wanted to enlist in the war and went back to Pennsylvania for that purpose. Before leaving he bought about $400 worth of clothes, took $1,000 with him, and left $1,000 in the bank about two months, when it was drawn out. The witness Lunger considered Geyer of exceptional ability as a buyer of cattle; very good in the handling of stock; square in his deals, and never heard his honesty questioned.
W. F. Graham: First saw Geyer in 1917, herding sheep for Marshall Ross; after he left the employment of Ross, he was buying stock; the first time he left he went to the army; the last time he said he was going to western Pennsylvania; reputation for honesty and integrity good;
The foregoing shows the activities, history and personal standing of Geyer before he entered the army prior to his transactions with the appellee Exchange Bank, which began several years later.
Roscoe Lunger: Fully two years after the war before Geyer came back; said he wanted to make arrangements to buy stock again; that Marshall Ross had agreed to loan him or give him $500 if he would do business with the Exchange Bank. He wanted to start buying on a more extensive scale; wanted to go to Denver and furnish cattle for feeders around there, “and I told him that would take too much money and I told him I couldn’t see my way clear to do it; I didn’t have the money.”
Ira A. Kirk, appellee: Did not know Geyer in 1918; but he was there, I guess. He was there before the war, as I remember it. Didn’t know him then. Knew what he was doing. Commenced doing business with him about June, 1922. He might have deposited a little money to start an account and then let it run as an overdraft. Believe the amount he started the account with was $500. If I loaned it I had some one sign the note with him; kind of remember that Ross signed the first note. Do not believe he had any property or real estate then; might have had some horses. Would ship stock and the money would come back to the bank from the commission firms; he had an account, and if there was an overdraft, would let it stand until he got remittance, then would credit his account. Quit doing business with him about July, 1923. His business had run behind; could not pay all losses suffered; took notes to protect bank for overdrafts; had no security and no collateral; notes taken July 11, 1923, do not know why not put on discount register until August 6, 1923, nor how bank ceased doing business with Geyer. He went away from there; suppose that was the end of our business, probably; do not know when he left. “Q. Mr. Geyer’s business transactions had been unsuccessful, is
S. L. Leas, trustee, appellee: President of appellee Exchange Bank, Gibbon, since its reorganization. Did not know of Geyer owning any property when he left.
The foregoing gives a history of the business activities and financial experiences of Geyer, as well as his standing and reputation, from the time he commenced doing business with the Exchange Bank, appellee, until the notes involved herein were sold by the Exchange Bank through Ira A. Kirk, its president and managing officer, to Ira A. Kirk, trustee for the Hershey trust estate.
It is apparent that the Geyer notes purchased by Kirk, trustee, from the Exchange Bank for the Hershey trust estate were of no value at the time they were purchased. Subsequent facts make certain what was quite apparent at that time. The question is: Was the investment by the appellee Kirk, as trustee of the Hershey trust estate, in the notes in question, an improper one, and such a breach of trust as to impose an obligation on the trustee making such investment to restore the trust funds diverted thereby? In determining that question the situation must be viewed as it should have appeared to a trustee of ordinary' vigilance and diligence, in the position of the appellee Kirk, and knowing what he knew of the personal standing of Geyer, his business and financial activities and ability at the time, and the conditions under wlpch the indebtedness evidenced by the notes were created. On’ the one side we have the fact that about the year 1917, before Geyer went into the army, during a brief experience of about two months, he was successful in business and made substantial profits. Further, that his character and reputation fo<r honesty, integrity and fair
A trustee is not an insurer and is not absolutely bound for the results of his acts. As a general rule, the measure of care and diligence required of a trustee is such as would be pursued by a man of ordinary prudence and skill in the management of his own estate. 26 R. C. L. 31280, sec. 130. He must act honestly and faithfully, in
Appellee Kirk directs attention to the provisions of the Hershey will, which provides: “It being my intention that the said trustee, in the management of the said trust estate and in its investment and reinvestment shall have as complete power to select investments as I would or might have had if I had remained living. * * * And said trustee shall not be personally liable with respect to any matter or thing done under any of the provisions of this, will unless it (he) shall be guilty of negligence in the premises.” And in the brief it is urged: “All that the trustee is required to do under this will is to act honestly and with ordinary discretion.” But the discretion to be' exercised under such circumstances in the execution of the trust must be a reasonable and not an arbitrary discretion. In re Allis’ Estate, 191 Wis. 23; Pabst v. Goodrich, 133 Wis. 43. If any discretion was exercised in the purchase of the notes in question, it was, under the facts in this case, an arbitrary one. It seems clear that the notes involved in this case, at the time they were purchased for the estate, had no value according to the usual and ordinary tests; apparently the maker had no further credit there; he had no property; he had left that community and was reported to have gone to an
At the time appellee Exchange Bank sold to Kirk, as trustee of the Hershey trust estate, the notes involved herein, and received in payment funds belonging to said trust estate, Ira A. Kirk was the president, a principal stockholder, and the active managing officer of said bank, and acted for the bank in that transaction. Knowledge of such president and active managing officer as to the trust character of such funds was therefore imputed to the bank. State v. Citizens Bank, 125 Neb. 882; State v. Bank of Otoe, 125 Neb. 414.
The bank, through its president and active managing officer, having participated in the wrongful conversion of the trust fund, and said trust fund being traced into the bank, where it was mingled with and augmented and enhanced its general mass of assets, it is chargeable as a constructive trustee with the duty of accounting to the trust estate for the funds so wrongfully converted, and a trust should be impressed upon all of the assets of said bank; that is, the assets under the direct control of the bank and also those in the control of the appellee S. L. Leas, trustee, to the extent of the balance not heretofore paid nor refunded to said trust, and interest, superior to any claim or lien of depositors and creditors. State v. Bank
The reorganization of the Exchange Bank after the date of the transactions involved herein did not affect the rights and liabilities of the parties. While new stockholders were secured and new officers were in charge, the bank was operating under the same charter and articles of incorporation, and under the same name. Further, such change of stockholders and reorganization does not estop the trustee of a trust fund, received by the bank prior to its reorganization, from recovering the same from the bank as reorganized.
The assets in the possession or control of S. L. Leas, as trustee of certain depositors, are still the assefs of the bank, though held by him as trustee for the depositors’ committee for a specific purpose. However, the contract offered in evidence, under which S.' L. Leas is holding the assets, makes provision for just such a contingency as here exists. Leas also testified to that effect. The claims of the depositors and creditors are inferior to the claim of the plaintiff for the trust funds of the Hershey estate. The trust funds never became the property of the bank, and are not assets to which the depositors and creditors would be entitled. State v. State Bank of Touhy, 122 Neb. 582.
The appellees contend that appellant should have brought an action at law and not in equity, and that they were entitled to a jury trial. Under the facts involved in this case the appellant, as the succeeding trustee of said trust fund, had an election of remedies. Robinson v. Tower, 95 Neb. 198. It is apparent that an action at law would not have been as effective as an action in equity. The trust fund having been mingled with the general mass of bank assets which were thus augmented and enhanced, resort may be had in equity to impress thereon a preferred claim payable from such general mass of bank assets. State v. Farmers State Bank, 121 Neb. 532.
Appellees further contend that appellant should be re
The investment was made by Kirk in the Geyer notes aggregating $2,900. Plaintiff in its petition pleads that a note of Geyer for $1,000, in which no payee was designated, was through inadvertence delivered in lieu of a $900 note. The $900 note was not produced at the trial. The amount of the consideration paid for the notes, $2,900, is not controverted. There is no satisfactory explanation as to how the $1,000 note, which is without a payee, got into the possession of the plaintiff, though it is indorsed the same as the others. But the inability to produce the $900 note is accounted for by the evidence of Ira A.. Kirk, who testified that several years later, about 1928, after he began to think the note was probably not good,
Reversed.